GST on Textile Products in India: Rates, HSN Codes & Everything Changed in 2025

There’s a joke that floats around textile trade circles in Surat: “GST on fabric is simpler than it used to be. You only need a CA, a lawyer, and a really good memory.”

It lands because it’s true. For years, the textile industry in India operated under one of the most tangled tax structures in any sector — different rates for cotton yarn versus synthetic yarn, a garment threshold that triggered disputes, and an inverted duty problem that locked up crores of working capital across the MMF value chain.

The September 2025 reforms changed a lot of that. Not everything, but enough to matter. If you run a weaving unit, a garment export business, a fabric trading shop, or even a small boutique, this guide will tell you exactly what rate applies to what you make or sell — and where you can claim input credit back.

How GST Works in the Textile Supply Chain

Before jumping into rates, it helps to understand how GST flows through a typical textile operation. GST is charged at every stage of the supply chain — fibre, yarn, fabric, processing, and garment — but each business can claim back the tax it paid at the previous stage as Input Tax Credit (ITC). In theory, only the final consumer bears the full tax burden.

The problem textiles always had: when input rates were higher than output rates, manufacturers ended up with more ITC than they could ever use. That stuck credit became blocked working capital. For small weavers and fabric processors operating on thin margins, this was a genuine operational crisis.

How GST moves through the textile supply chain — each stage claims ITC on the previous stage’s tax paid.

GST Rates on Textile Products: Complete Table (2026)

The September 2025 reforms — decided at the 56th GST Council meeting — restructured the entire textile rate schedule. Here is the current picture, effective from 22 September 2025.

Fibres & Raw Materials

Yarn

Fabrics

The good news: for fabric, the answer is almost always 5%, regardless of fibre type. This uniformity was one of the goals of the 2025 reforms. The old patchwork of rates — some nonwoven at 12%, some technical fabrics at 12% — has largely been cleaned up.

Readymade Garments & Apparel

Garments have the most important change from the 2025 reforms. The threshold for the lower rate was raised from ₹1,000 to ₹2,500 per piece, meaning significantly more of the market now qualifies for 5% GST. But the rate above the threshold rose sharply — from 12% to 18%.

Made-Up Textile Articles & Home Textiles

Visual Rate Guide: Textile GST at a Glance

Visual summary of current GST rates across the textile value chain. 5% covers the vast majority of fabric and yarn products.

GST on Job Work in the Textile Industry

Job work is central to how Indian textiles work. Very few businesses do everything in-house. A weaver buys yarn, sends it for sizing, gets it woven, sends it out for dyeing, then for printing, then for finishing. Each of these steps — when done by a separate business — is technically a taxable service.

Here’s how job work is taxed in textiles:

Input Tax Credit (ITC) — What You Can Claim

ITC is where a lot of textile businesses leave money on the table — either by not claiming what they’re entitled to, or by getting it wrong and facing scrutiny later.

The basics of ITC in textiles:

If you are a GST-registered textile business, you can claim ITC on:

GST paid on yarn purchased for manufacturing fabric. GST paid on dyes, chemicals, and processing agents used in production. GST paid on machine maintenance, spare parts, and factory inputs. GST paid on packaging materials used for outward supply.

You cannot claim ITC on:

Personal use items — fabric or garments purchased for the proprietor’s or staff’s personal use. Motor vehicles (unless you’re in the transport business). Food and beverages served to employees. Club memberships or health services.

“The ITC system is designed to ensure the tax paid at one stage becomes a credit at the next. For textile manufacturers, the discipline of maintaining GST invoices for every purchase is what separates smooth filings from notices.”

The Inverted Duty Problem — Is It Fixed?

The MMF (man-made fibre) sector’s inverted duty problem was a long-running grievance. Under the old structure, polyester fibre attracted 18% GST, yarn made from it attracted 12%, and the fabric woven from that yarn attracted only 5%. A fabric weaver was perpetually accumulating credit they couldn’t use against their 5% output.

The September 2025 reforms fixed this for fibre and yarn — both now at 5%, matching the fabric output rate. For the core weaving and fabric stage, the inversion is substantially resolved.

However, a partial inversion remains: dyes, chemicals, zippers, labels, and embellishments used in garment making are still taxed at 12%–18%, while most garments up to ₹2,500 are at 5%. Garment manufacturers, particularly in the export sector, should be aware that ITC accumulation at this stage is still possible and that refund applications (Form GST RFD-01) remain the mechanism for recovering it.

GST Registration Rules for Textile Businesses

Not every textile trader or weaver needs to register for GST. Here are the thresholds:

Small weavers and handloom artisans selling locally and below the ₹40 lakh threshold are not required to register — but voluntary registration has a benefit: it allows you to claim ITC on yarn and other inputs, which can meaningfully reduce your net cost of production.

HSN Code Reporting Requirements (2026)

Since January 2025, HSN-wise reporting in Table 12 of GSTR-1 is mandatory for all taxpayers, with the GST portal now validating codes from a dropdown rather than accepting free text. Getting your HSN codes right on every invoice is no longer optional.

Exports: Zero-Rated Supply

Textile exports are zero-rated under GST — you do not charge IGST on export invoices. But you have accumulated ITC on your inputs. There are two ways to handle this:

Export under Letter of Undertaking (LUT) — the most common route. You export without paying IGST and then claim a refund of the ITC accumulated on your inputs. This doesn’t block your working capital. The LUT needs to be renewed for each financial year on the GST portal.

Export with payment of IGST — you pay IGST on the export invoice and then claim a refund. The shipping bill serves as the refund application. This route is simpler procedurally but locks up money temporarily.

For most mid-size and large textile exporters, the LUT route is standard practice.

GST 2.0 before-and-after comparison for the textile sector. Effective 22 September 2025.

Practical Tips for Textile Businesses in 2026

Knowing the rates is necessary but not sufficient. Here’s what actually keeps businesses out of trouble:

Update your billing software’s HSN master. The September 2025 changes reset rates for fibres, yarns, and garment thresholds. If your ERP or billing software has pre-set HSN codes and rates from 2024, they need to be updated. Misclassification at the invoicing stage is one of the most common causes of GST mismatch notices.

Keep invoices for every input purchase. ITC claims live or die on documentary evidence. Every purchase of yarn, dyes, machinery spares, or packaging materials needs a proper GST invoice showing the supplier’s GSTIN, the HSN code, and the tax amount. A kaccha challan or a verbal agreement gives you no credit entitlement and leaves you with unaccounted stock — a double compliance problem.

Reconcile GSTR-2B before filing GSTR-3B. Since the ITC auto-population system (GSTR-2B) was strengthened in 2025, ITC claims in GSTR-3B must match what your suppliers have filed in their GSTR-1. If a supplier hasn’t filed their return, your credit is at risk. Follow up with regular suppliers on their filing status — this is now a practical business requirement, not just an accounting task.

If you’re in the premium garment segment, reprice strategically. The jump from 12% to 18% above ₹2,500 is significant. Garments priced between ₹2,400 and ₹3,000 are in a particularly sensitive zone. Brands that can legitimately position key SKUs below ₹2,500 save their customers 13 percentage points of tax. That’s a real competitive advantage at retail.

File LUTs before the new financial year if you export. LUTs must be renewed every year. Many exporters get caught in April without a valid LUT, which means either delaying shipments or paying IGST and waiting for a refund. Set a reminder for March.

Frequently Asked Questions

What is the GST rate on cotton fabric in India?

Cotton fabric attracts 5% GST across all types — bleached, dyed, printed, or grey. The HSN code is typically 5208 for woven cotton fabrics containing at least 85% cotton by weight and up to 200 GSM.

What is the GST rate on readymade garments in 2026?

Garments priced up to ₹2,500 per piece attract 5% GST. Garments priced above ₹2,500 per piece attract 18% GST. This threshold was revised from the earlier ₹1,000 limit as part of the September 2025 GST 2.0 reforms.

Is GST applicable on handloom fabric?

Handloom fabric is taxed at 5% GST. However, small weavers with annual turnover below ₹40 lakh are not required to register for GST and can sell without collecting it. Khadi fabric sold through KVIC outlets is exempt from GST.

Can a small fabric shop claim ITC?

Yes, if the shop is GST-registered. Even a trader who only buys and resells fabric can claim ITC on purchases, offset it against GST collected on sales, and pay the difference to the government. Registration is required to access this benefit.

What is the HSN code for polyester fabric?

Polyester woven fabrics typically fall under HSN Chapter 5407 (woven fabrics of synthetic filament yarn) or Chapter 5512–5516 (woven fabrics of synthetic staple fibres). The GST rate is 5% for all of these.

Are dyeing services taxed at the same rate as fabric?

No. Dyeing services (job work) are taxed at 18% GST under the services category (SAC 9988), even though the fabric being dyed is taxed at only 5%. This is one of the remaining inversion points in the textile supply chain.

What is the GST rate on yarn in India in 2026?

All yarn types — cotton, polyester, viscose, nylon, silk, and wool — now attract 5% GST following the September 2025 reforms. Retail-packed sewing thread is an exception and remains at 12%.

Final Thoughts

GST on textiles is not simple — anyone who tells you otherwise hasn’t tried to classify a blended technical fabric or sort out an ITC mismatch notice. But the September 2025 reforms have genuinely moved the needle. The MMF sector’s worst structural problem — paying 18% on fibre and collecting 5% on fabric — is resolved. The mass-market garment threshold has been expanded in a way that benefits both buyers and sellers at the volume end of the market.

The remaining pain points — dyeing services at 18%, accessories and trims at 12%–18% against 5% fabric output, and the mid-premium garment squeeze above ₹2,500 — are real but manageable with good record-keeping and pricing discipline.

If you’re unsure about the classification of a specific product or the right HSN code for a new fabric or garment line, always verify against the latest CBIC notifications rather than relying on memory. The official GST rate schedule is available at cbic-gst.gov.in and is updated whenever the council makes changes.

For fabric-specific calculations, you might also find the Fabric Cost Calculator on this site useful for building GST into your costing and pricing decisions from the start.